Sales growth slowed slightly at the Irish arm of homewares group Ikea last year ahead of the opening of its second Irish store.
Figures published on Wednesday by the Swedish retailer said the company saw sales at its Irish business rise to €152.5 million in the year to the end of August.
That is 15.5 per cent ahead of turnover the previous year, but the rate of growth is down from 17 per cent in the 2014/15 year.
Ikea said in its financial year up to August 31st 2016, Ireland was its best market in terms of “comparable growth” and that it was now the market leader in the Irish home furnishings sector. The company said that bedroom furniture was the fastest growing segment of its sales in Ireland.
Ikea’s results demonstrated “the success of our value-driven business and our commitment to our people, the planet and our customers,” said country manager Marsha Smith.
Ikea said it employed an extra 110 people during the year, bringing the numbers in its Irish workforce to 663. Ikea noted that it pays the “living wage” of €11.50 an hour to its workers, as well as a pension contribution of just over €900 in the year.
Ms Smith said the commitment to the living wage highlighted Ikea’s investment in its people. “Not only has it made a big impact on our coworkers, it also makes good business sense because we know that happy coworkers make happy customers.”
Ikea, which has operated its Ballymun store since 2009, opened a second outlet in Ireland – an order and collection point – at Carrickmines in Dublin in September.
Subsidiary sales
Also on Wednesday, the parent Ikea Group said it had sold key subsidiaries for €5.2 billion as part of an overhaul to help the furniture retailer react to new competition and shifts in consumer preferences away from its vast out-of-town stores.
The group, which operates most Ikea stores, sold subsidiaries that manage its supply chain and that design, purchase and manufacture all Ikea furniture, to Inter Ikea Holding BV, which owns the brand. The company is based in Delft in the Netherlands.
The transaction, initiated by Inter Ikea, helped boost pre-tax profits by 23 per cent, to €5.4 billion, for Ikea Group, which is headquartered in Leiden in the Netherlands.
Since September 1st, Inter Ikea has controlled the development of the Ikea range and supply chain. This relegates the Ikea Group to being a pure retailer, operating under a franchise agreement with Inter Ikea.
According to Inter Ikea chief executive Torbjorn Loof, the company took full control of developing the business in response to increased customer demands for shopping in city centre stores, buying online and using collection points.
“The concept and the existing franchise system was made up in the beginning of the 1980s. It was another era,” Mr Loof told Reuters. “The main aim is to make sure that we can grow and expand and be relevant to our customers.”
Inter Ikea had announced that it would exercise its rights to take back control of the design and other activities last year. The price of the transaction was revealed for the first time on Wednesday, when the two groups presented their earnings to August 31st.
The Ikea Group is owned by a Dutch foundation and Inter Ikea by a Liechtenstein foundation. The split of responsibilities aims to create a tension that spurs growth, according to Inter Ikea.
The overall structure, which is also tax efficient, was created nearly 40 years ago by Swedish founder Ingvar Kamprad in order to allow Ikea to preserve its independence in perpetuity. Profits of both groups are retained in the companies or foundations to fund the expansion of the Ikea concept.
Ikea Group’s share
Sales from Ikea stores worldwide hit €36.4 billion in 2015, Inter Ikea said in its annual summary. Ikea Group accounted for €34.2 billion of this total.
The group's chief executive, Peter Agnefjall, said the transfer of key functions and 26,000 staff would weigh on his company's future profits, but would be offset by improvements in its contracts with Inter Ikea.
The Ikea Group, he told Reuters in a telephone interview, “obtained important strategic benefits that will strengthen our position going forward. So all in all, we’re happy with the transaction.”
Analysts said that lack of detail around the deal – one of 2016’s largest retail transactions in the world – made it hard to assess whether the price paid was high or low. Still, the consensus was that the new split of functions should be good for the overall franchise.
"It's going to be a good move for them, because one of the big problems is that they have been quite slow to adapt to customers," said Matt Walton, an analyst at Verdict Retail.
As part of the restructuring, Mr Loof said, Ikea Group received rights to open new channels for selling Ikea products, including in new city-centre stores and via urban collection and order points. Also, the time scale of Ikea Group’s franchise contracts were amended to allow for the long-term investments needed to overhaul Ikea’s operating model.
He said certain areas of the product line, such as living room furniture, needed to be improved.
Inter Ikea said it had pre-tax profits of €329 million in the eight months to the end of August. The company receives a franchise fee of 3 per cent of turnover at all Ikea stores. It had just 1,300 employees two years ago.
The company said profits would increase in the coming financial year due to the acquisition of the subsidiaries that operate design studios, logistics hubs and 43 factories around the world. The acquisition was funded by borrowing and funds from its parent.
Cash pile boost
The deal boosted Ikea Group’s cash pile to €23.2 billion from €16.7 billion at the end of August 2015. Mr Agnefjall said the sale proceeds would be used for investments, boosting the company’s cash buffer and the resumption of paying a dividend, which would be €840 million for 2016, compared with €600 million for 2014.
Mr Agnefjall said he hoped Inter Ikea would continue to select Ikea Group, technically a company called Ingka Holding BV, to open Ikea stores in new markets.
Ikea Group increased its sales by more than 7 per cent last year, helped by new store openings and increased online sales. Combined, the other 12 franchisees boosted sales at their stores by 22 percent, Inter Ikea’s results show.
